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Padded balance sheet to help Penguin International ride out choppy waves

Samantha Chiew
Samantha Chiew • 3 min read
Padded balance sheet to help Penguin International ride out choppy waves
Penguin International's strong balance sheet and diversified portfolio keeps it at "add"
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SINGAPORE (June 18): CGS-CIMB Research is reiterating its “add” recommendation on Penguin International but with a lowered target price of 55 cents from 81.5 cents previously.

Despite Covid-19 and low oil prices affecting the company, it has not seen any cancellations in contracts. Penguin also has a stronger balance sheet and more diversified portfolio, as compared to the last oil price crisis back in 2014-2016.

In a Wednesday report, analyst Cezzane See says, “We still like Penguin for its net cash position, which will help it ride out these tough times, and its more diversified build-to-order (BTO) and chartering portfolio, which we deem makes Penguin a less risky investment now, compared with during the last oil price crisis.”

Earlier in May, Penguin announced that its Tuas shipyard remained in operation during the circuit breaker, but had to operate at less than half of its foreign workforce. Its shipyard in Batam had no movement restrictions and, hence, was still operating at full strength, with the requisite safe distancing, screening, segregation and other measures in place.

Deliveries had taken a step back in 1Q due to country lockdowns. In May, Penguin also guided that demand for some of its products has slowed and there have been slight rate reductions for its crew boat charters.

However, none of its BTO, build-to-stock (BTS) and charter vessels have seen contract cancellations.

On the other hand, Penguin’s net cash position as at end-FY19 was at a 10-year high at $59.8 million and above its cash position during the last oil price crisis. The company also has balanced its product portfolio to have more BTO projects, including windfarm vessels and patrol boats, and to more countries such as Australia and Taiwan.

For FY20, Penguin guided for slower own-fleet expansion and stock vessel construction programmes to conserve cash.

“We think this will help stave cash depletion, while the higher proportion of BTO programmes will give Penguin a baseline of projects to work on in FY20 even as BTS sales slow, in our view,” says See.

Nonetheless, near-term uncertainties loom and the analyst is lowering her FY20-21 EPD estimates by 14-27% on lower shipbuilding, ship-chartering revenue and other income. While this results in a 29% y-o-y drop in FY20 EPS, a 29% y-o-y recovery is forecasted for FY21 EPS, on the back of recovery in ship vessel demand as industry sentiments pick up moving ahead.

As at 1.15pm, shares in Penguin are trading at 49 cents or 0.6 times FY20 book with a 2.4% dividend yield.

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